India’s poor split on new cash-in-hand welfare programs

New Delhi’s experiments in replacing subsidies with cash handouts are part of its
grand scheme to maximize efficiency in the distribution of its US$61 billion welfare budget

By Adam Plowright / AFP, BUDHI BAWAL, India

Sun, Oct 28, 2012 - Page 14

Uddal Singh, a retired Indian army sergeant, is part of an experiment trying out radical changes to the Indian welfare system that the government plans to adopt nationwide — and he is furious.

He, along with the 250,000 residents of Kotkasim, a bloc of Alwar District in western Rajasthan state, were chosen to be part of a pilot scheme to end the sale of subsidized kerosene, a fuel used by the poor for lighting and cooking.

Instead of buying it at a heavily discounted rate at the local government shop, those with ration cards were each — in theory — paid cash by the government and required to purchase the liquid at the market price.

“Since one year, no money has come into my account, not one paisa [cent],” the mustachioed 58-year-old said bitterly in the village of Budhi Bawal, a dusty one-street settlement of a few thousand people, mostly farmers.

Instead of lighting his kerosene lamps, he says he now makes do with candles at night.

Officials “come here to the shop, see the record of our ration card numbers and say the money will come,” he said outside the grubby Fair Price Shop run by the local government dealer.

The Kotkasim trial has been disruptive, tricky to implement and — depending on who you listen to — either a roaring success in cutting wasteful state spending, or a disaster that has caused hardship.

The conclusions are important.

In New Delhi, where the trial is viewed as a model for the future, the government is fast-tracking plans to distribute as much of India’s US$61 billion welfare budget in cash as possible.

India is home to hundreds of millions of some of the poorest people on the planet, who depend on government handouts for survival.

“As long as the money arrives in people’s accounts, the scheme is not a bad idea at all,” village leader Rakesh Kumar told reporters in an interview.

However, he estimates 70 percent of people in his area have had problems receiving the cash.

“We have had to deal with the fallout of the government’s experiments,” Kumar said.

The attraction of paying cash to the poor and leaving them to spend it has been enhanced by two foreign programs which are broadly seen as successful: Mexico’s Progresa-Oportunidades and Brazil’s Bolsa Familia.

Under the cash model, governments can keep better track of the money they spend, cut out middlemen and even make the money conditional on beneficial things such as sending children to school.

They also bring the poor into the banking system, obliging them to open accounts to receive welfare payments.

Nandan Nilekani, who runs Aadhar, the Indian government’s scheme of handing out new biometric IDs, says the system has already reduced fraud.

“When Aadhar is used, in some of pilots, there has been a 20 percent to 30 percent reduction in beneficiaries by reducing duplicants,” he said, pointing to trials in the states of Tripura, Jharkhand and Andhra Pradesh.

Across India, 200 million people already have a new unique Aadhar ID and Nilekani’s scheme aims to cover half of the population, or 600 million people, in the next 18 months.

“On the basis of Aadhaar, we can ensure that the benefit of schemes reach genuine beneficiaries and that there is no mediator,” Indian Prime Minister Manmohan Singh said last weekend.

India subsidizes everything from fertilizer and food to kerosene, so cutting waste is crucial to the government’s drive to rein in its budget deficit.

Yet a welfare shake-up is politically risky and fraught with danger in a country where an estimated 42 percent of children under five are malnourished.

The Indian Public Distribution System is the biggest such scheme in the world, providing subsidized kerosene, wheat and rice to up to one-quarter of all households from rundown shops of the sort seen in Budhi Bawal.

It is also staggeringly inefficient. An estimated 58 percent of grains purchased by the Indian government fail to meet their intended targets, data from the Indian Planning Commission showed in 2005.

However, the results in Kotkasim are described by the top local administrator, Alwar District Collector Ashutosh Pednekar, as “remarkable.”

Figures from his office show kerosene consumption has fallen 82 percent since the cash scheme began, a saving for the government of 1.5 million rupees (US$30,000) per month.

Before, crooked dealers would siphon off subsidized kerosene at 15 rupees a liter and sell it on the black market for around 30 rupees, where it was purchased as a cheap replacement for diesel to run tractors or generators.

Those entitled to discounted fuel also had an incentive to draw their full allotment — up to three liters per month — and then sell it on at a profit.

“The diversion of kerosene for purposes other than cooking and lighting has been stopped,” Pednekar told reporters.

“The moment you start selling kerosene at a market price, the business collapses for those with a business in ‘leakages,’” the 34-year-old added.

Under the next phase of his plan, the sale of subsidized cooking gas cylinders will be phased out in Kotkasim.

In five months, the whole of Pednekar’s Alwar District, home to 3.7 million people, will move over to the cash transfer system for kerosene.

While he conceded people were “not going gaga” over the cash system, “by now, there would have been a hue and cry” if they had not received the money.

In the dusty villages of the trial area, foreign media spoke to households who said the cash had indeed arrived promptly.

However, there was also anger and confusion.

Some complained of surly bank officials who refused to help them; others said repeated complaints had come to naught; many said they had either stopped buying kerosene altogether or were now paying the higher price from their own pockets.

John Blomquist, an economist from the World Bank in New Delhi and expert on welfare programs, says cash transfers can be an effective strategy to cut fuel and power subsidies.

“As countries get more developed, you tend to see fewer in-kind benefits,” such as subsidized fuel, he told reporters. “You can design a great cash transfer system, but it’s really about do you have the mechanism in place to implement well? Can you monitor well?”